Assumption, noun; plural noun: assumptions
a thing that is accepted as true or as certain to happen, without proof.(e.g.,”they made certain assumptions about the market”)
Everyone knows the old saying about assumptions:
When you assume, it’s easy to make an ass out of u and me.
Basically an assumption is a belief about how things work or why people do what they do. It’s easy for an assumption we believe as true to actually be false. For example: “He assumed I was angry at him but I was really just frustrated with myself.”
In business, assuming something to be a certain way is often used to explain results or outcomes that are often lacklustre. Everyone accepts the assumption, without really digging deeper to find out the facts!
So what, you might be saying?
Well, one of the biggest assumptions occupying the business press these days is about large salaries and bonuses in banking. Here’s what people are upset about. Even though many banks, such as RBS and Barclays, are posting declining performance and poor earnings, both are increasing senior executive salaries and bonuses. Why? An assumption they believe to be a fact!
Here’s what is assumed by most senior level bankers:
“Unless we pay very large salaries and bonuses for top executives and other key banking staff, they will leave for another company and we will lose their expertise and capabilities.”
A corollary of this belief (assumption) is that “higher salaries attract the best and highest performing people and that we can’t attract and retain the best unless we pay big bucks”.
Okay, show me the proof.
Right now both Barclays and RBS are paying very big salaries, have been for years, yet their performance is less than stellar, and in fact, pretty bad. And it was these same high performance, highly paid executives that helped bring about the banking crisis in the first place. And when one executive leaves for another bank, HR just poaches an executive from a different bank, so not much changes. Banking today really doesn’t develop people, they just trade them around! It must be frustrating for a young up and coming bank executive to be passed over as someone is brought in from another bank to fill a key position.
And while these may be “big producers” for the bank, I know for a fact that they don’t contribute much to the “new culture” of banking that both RBS and Barclays are openly promoting to the press and public. They just take their attitude of “me first” from one bank to another. Customers take a distant second to “my salary and bonus”. Culture and a “new culture” of banking isn’t even on their radar screens.
So, what if, just for a moment, we say the belief that “we need to pay excessive salaries and high bonuses in order to attract and retain the best people” is false? What if it were more true that “how we develop, coach and treat people determines their capabilities, performance, loyalty to the bank and customers, and results as much (or more) than pay”?
Yes, you may lose a few current top producers. But do they really add to the new culture of trust and respect or do they just bring in profit? And what collateral damage is their behaviour and work habits doing to the other staff, especially the support functions, who are critical to successful banking but whom most high flying traders and senior executives treat with distain?
Okay, you might lose a few high flyers, but maybe the upside would be a new level of professionalism, teamwork, development and performance. Maybe even a new level of performance that is not dependent upon a few individuals but a performance level the entire team is accountable for creating.
A good example can be found in professional major league baseball (MLB). Those US professional baseball teams with the highest salaries are not always the best performing teams or the league champions. In fact, only about 20% of the win ratio is related to total team salary. Other factors are also important, especially coaching and teamwork.
An old but true business adage is that when your revenue is overly dependant upon one or two customers your business is at serious risk. Well, when a bank’s performance is overly dependent upon a few highly paid staff who demand special bonuses to stay, you are at serious risk. And excessive risk is something the big banks can’t afford at this stage in their comeback, especially with the currently low trust levels among the public and regulators.
Change the assumptions, change the game!
See the review of LEVERAGE in The Economist (January 9, 2014.
John also writes thriller novels: novels.johnrchildress.com